Digital Assets

The recent fights of the music industry remind me a lot about the early days of the personal computer industry. While I was still a kid then, it seems the software industry went through a similar experience in terms of trying to figure out how to deal with piracy. In this entry, I examine what I consider to be the four stages of dealing with piracy of digital assets.

I believe that any industry that is seeing a move of their intellectual assets to a digital medium will go through four basic stages: ignorance, panic, protection and litigation, quiet acceptance. This was the case with software in the 80s and 90s, is currently the case with music, and will soon be the case with movies. I suspect that other industries like the professional photography market are facing similar issues currently or have in the past.

Stage 1: Ignorance

During this stage, an industry ignores the problem, either because it is seen as the domain of fringe elements or doesn’t seem like it could possibly have a huge impact. Consider this the ostrich strategy. Executives downplay the importance of a new culture (software crackers in the 80s, file-sharing in the mid-90s) and figures that things will always keep getting better. At that point, there is a basic level of acceptance that can be seen as a way to turn things to one’s advantage (for example, it was long rumored that Microsoft’s largely hands-off approach on piracy of early copies of Microsoft Word was a way for them to quietly gain market shares, and that people would eventually upgrade to paid legal copies over time).

Stage 2: Panic

A few stories start popping up in the press about the new phenomenon. Investors start knocking on your door asking what you are doing to fight the illegal use of your product. Sales on a new product are lower than expected (could be because the product is a low quality one but no one seems to mention that) and you need to find a scapegoat. Aha! Those nasty crackers/file-sharers/etc.. must be responsible. You start denouncing the new movement as dangerous to the foundation of capitalism, the proper order of the world and whatever else you can throw in to stop the distribution of your data.

Stage 3: Protection and Litigation

At this point, you realize that just denouncing the new spread of you intellectual property will not stop the flow. So you have to do something bigger. It is generally at that stage that new concepts like encryption or other protection mechanisms start to make their way on your product. Some of the cases are more extreme than others and there is a never-ending supply of new tools from vendors who see you as an opportunity to unload stuff they couldn’t have sold if you were not panicking.

In the eighties, some software protection mechanism went beyond software requiring such things as specialized hardware components to protect your software. While those may make sense in a corporate setting, some companies were trying to sell such solutions in the consumer market, figuring that they could make a lot of money if every personal computer user was required to use one of those. Software vendors that believed them ended up seeing lower than expected sales on their software as users realized that the dongles were too hard to use (in those days, the success rate even for people who had legally bought the software was very low) and bought a competitive product without the complicated protection.

At that stage, companies are also tempted to start suing their customers. A few high visibility cases are brought in the hope to scare the vast majority of the public. This succeeds to some extend in temporarily reducing the visibility of pirates as such activities become more quiet. No longer are people sharing illegal copies with everyone they know. At that point, they start reorganizing in smaller groups of people they know and share among those groups.

Accompanying all this is generally a public relations and marketing effort to “educate” people in the evils of illegal copying intellectual property. In the eighties, the BSA became known for their tag line of Don’t copy that floppy, which was widely laughed at by computer users. Similar thing is currently happening with the RIAA efforts.

The problem at this point is that at this point it’s too late. The prosecution serve in highlighting that it is possible to share such thing (as software, music, etc…) and more people try it because of the lure of free. The irony of such move is that by creating high profile cases and by marketing the issue, the industry gets more people to start copying things illegally. Were it not for the high profile lawsuit around the early Napster, few people would have know about file sharing, for example. The problem in such approach is that by suing the little guys, the press is painting fights as David vs. Goliath ones with the big bad industry prosecuting the small guy.

Stage 4: Quiet Acceptance

After a while, the industry then realizes that piracy is par for the course and that there is no way it can completely be defeated. At that stage, the industry then looks into ways to salvage its business and ensure that money can still be made. It is at that point that industry players start experimenting with ways to add value to the the customer experience. We’re starting to see it with things like the Apple Music Store, which attempts to reach a middle ground between protecting intellectual property while still offering what consumers want. Based on the reception of the store, one could say that they are being successful at putting more restrictions on users without users screaming about them.

So why look at this?

Part of my logic in terms of writing this entry is that we are starting to see the scenario repeat itself in the movie and the television industry. On the TV side, Broadcasters are now pushing for Broadcast flags and users screaming. I suspect that the TV industry is now nearing the end of stage 2 and moving into stage 3. The music industry is deep in stage 3, the software industry has long reached 4, and the movie industry is starting to enter stage 2. Odd how it all seems to continue repeating itself.